The New “Clinton-Lite” Global Warming Strategy: Half the Controversy, Same Bad Economic Aftertaste

President Clinton’s latest strategy to address global warming might best be described as Clinton-Lite: It has half the controversy of his previous strategy, but the same bad economic aftertaste.

On October 22, the President unveiled his strategy for the upcoming negotiations in Kyoto, Japan aimed at reducing world emissions of greenhouse gases (GHGs). The plan calls for reducing global GHG emissions to their 1990 levels between 2008 and 2012. To achieve these goals, the administration would offer U.S. industry $5 billion in tax credits and other incentives — to be paid out of taxpayers’ pockets — to encourage the development of more environment-friendly technologies. More significantly, the plan calls for the development of an international emissions trading scheme, a system that would ostensibly achieve GHG reductions with less economic disruption by allowing U.S. companies to evade strict emission limits through purchases of unused emission credits from overseas.

President Clinton’s decision to embrace an emissions trading scheme is significant for several reasons. First, the plan has virtually no chance of succeeding as it could take a decade to develop the international infrastructure necessary to administer the system, making meeting the emission targets for 2008-2012 all but impossible. Second, even assuming emissions trading is possible, it is by no means the “moderate,” economy-friendly alternative that its advocates claim.

The principle difference between tradeable emission permits and the leading alternative, a carbon tax, seems to be that one is called a “permit” and the other a “tax,” making the former less controversial and thus more politically feasible. In practice, however, the two options are the same. Whether a company must buy permits or pay taxes to emit greenhouse gases makes little difference. The bottom line is that the cost of energy use will rise, consumption of fossil fuels will fall and the economy will falter.

According to the respected econometrics firm the WEFA Group, under the kind of tradeable permit system the President advocates, emission permits would run $100 per metric ton of carbon in 2005 and rise to $300 per metric ton by 2020. These costs would translate into overall increases in consumer prices of between 40% and 90% by 2020. The price for a gallon of gas, for example, would rise by 65 cents while the cost of natural gas and electricity would rise by 132% and 101%, respectively.

American workers would be particularly hard hit. The cumulative Gross Domestic Product loss over 20 years of would amount to $3.3 trillion, equal to $12,047 per person and $29,464 per family. The result would be a cumulative loss of 22.8 million person-years of employment — roughly 19% of total U.S. employment in 1996.

Even the liberal Brookings Institution has express reservations about the kind of solution the President advocates. Brookings’ Warwick McKibbin and Peter Wilcoxen argue that such a system would result in huge international transfers of wealth to developing nations, causing “dramatic changes in exchange rates, trade balances, and international capital flows.” Assuming U.S. carbon emissions rise by 20% over 1990 levels by 2010 permits run $100-$200 per ton of carbon, the U.S. trade deficit would increase by between $27 and $54 billion each year. To put this in perspective, the entire U.S. trade deficit was just $114 billion in 1996.

While the President’s latest global warming proposal appears more moderate, more reasonable than his earlier plans, it will still have a devastating impact on the economy — all to avert planetary warming that satellite data indicates is not occurring. It’s simply a different brew with the same bad aftertaste.


David Ridenour is vice president of The National Center for Public Policy Research.

The National Center for Public Policy Research is a communications and research foundation supportive of a strong national defense and dedicated to providing free market solutions to today’s public policy problems. We believe that the principles of a free market, individual liberty and personal responsibility provide the greatest hope for meeting the challenges facing America in the 21st century.